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Showing 461 to 480 of 782 Records
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2007 (3) TMI 366
Whether pledging of ornaments with the bank against a loan and sale of such goods if the loan is not discharged, would be "business" within the meaning of section 2(1)(e) of the Andhra Pradesh General Sales Tax Act, 1957 read with Explanation IV thereto?
Held that:- By Explanation IV to section 2(1)(e) of the 1957 Act, banks, financial institutions, etc., are sought to be covered by an in-built expression "deeming provision" in the said Explanation. By the said deeming fiction the meaning of "dealer" is sought to be expanded so as to include banks, financial institutions, L.I.Cs., etc. By the said Explanation a liability is sought to be created for the first time on banks, financial institutions, L.I.Cs., etc. Further, we are concerned with an indirect tax, the incidence of which falls on the borrower/pledgor. The auction sale in the present case is as far back as on August 19, 1987.
The transaction has concluded since then. The bank (respondent) is not expected to recover the tax from the pledgor in respect of old auction sales which took place much prior to August 1, 1996.
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2007 (3) TMI 364
Whether banks are "dealers" under section 2(viii) read with Explanation I of the Kerala General Sales Tax Act, 1963?
Held that:- Appeal dismissed. Even if the sale of pledged ornaments takes place outside the banking business, the 1963 Act would cover even such transactions. Therefore, once such transactions fall under section 2(viii)(g) of the 1963 Act, banks become "dealers" and they are liable to pay sales tax under the said 1963 Act. It is true that the definition of the word "sale" under section 2(xxi) of the 1963 Act does not include mortgage, hypothecation, charge or pledge, however, the important point to be noted is that the definition of the word "sale" under the 1963 Act is not the same as under section 4 of the Sale of Goods Act, 1930. The definition of the word "sale" in section 2(xxi) in the 1963 Act is very similar to section 2(g) of the Central Sales Tax Act, 1956 which is held to be having a very wide meaning as compared to the definition of the word "sale" in section 4 of the Sale of Goods Act, 1930. Further, when charge or pledge is enforced that enforcement is by way of sale of the pledged or hypothecated goods; that sale is for consideration and, therefore, it falls within the ambit of section 2(xxi) of the 1963 Act.
In the circumstances, there is no infirmity in the impugned judgments of the division Bench of the Kerala High Court.
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2007 (3) TMI 356
Whether the tax sought to be levied under section 5A on goods, would amount to tax at a second stage and therefore violate section 15 of the Central Act?
Held that:- Appeal allowed. After an examination of the relevant case law, we find that the liability to tax or taxability under section 5 of the State Act remains unaffected by an exemption under section 10 of the State Act. Consequently, the respondent cannot validly shift the burden of tax to the purchaser under section 5A of the State Act for the same would violate the condition of single-stage tax under section 15 of the Central Act.
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2007 (3) TMI 352
Whether every dealer is liable to pay tax under the said Act for each year, on its turnover of transfer of property in goods whether as goods or in some other form, involved in the execution of works contract, at the rate specified therein?
Held that: Appeal allowed. If a person deducts tax at source in terms of a statutory provision for the benefit of the dealer, the State and/or the assessing officer is not powerless to enforce such statutory duties imposed upon the person concerned.
Assessment of tax has nothing to do with the recovery of the amount deducted by a contractor from the running bills of the sub-contractor, which is a separate statutory liability. We hope and trust that respondent No. 5 and/or his nominee shall complete the proceedings in terms of this order at an early date. Till such order is passed, no recovery shall be made from the appellant pursuant to or in furtherance of the assessment order already made.
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2007 (3) TMI 346
Claim u/s 43B - Contribution to provident fund - Held that:- assessee was entitled to claim the benefit in Sec.43-B for that period particularly in view of the fact that he has contributed to provident fund before filing of the return - Decided against Revenue.
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2007 (3) TMI 337
Issues involved: Appeal filed by Revenue against Commissioner (Appeals) order allowing importer's appeal on vessel valuation.
Summary:
1. The respondent purchased an old vessel M.V. Kupa for breaking at Ship Breaking Yard, Alang, under a Memorandum of Agreement. The vessel was imported into India, and subsequent amendments were made to the agreement reducing the purchase price. The importer claimed a reduced value for assessment, but the Original Authority assessed the value at the original price based on precedents from Calcutta High Court.
2. The Appellate Commissioner dismissed the appeal on bunkers and provisions but allowed the appeal on the vessel's transaction value, accepting the reduced price as per the amended agreement. The excess duty collected was deemed refundable to the importer.
3. A Larger Bench decision stated that any price reduction agreed upon before import is relevant for assessment, but post-import variations are not unless due to specific reasons like goods not matching the contract. In this case, as the vessel was sold "AS IS WHERE IS BASIS" and no serious breach occurred, the post-import price reduction was not justified. The Commissioner (Appeals) erred in accepting the reduced value without considering the original agreement price as the transaction value in international trade.
4. The decision of the Larger Bench in a similar case was found applicable, and the post-import reduction in the agreement's value was not considered valid. The Commissioner (Appeals) order reducing the transaction value was set aside, restoring the Original Authority's assessment of the vessel at the original price. The appeal was allowed accordingly.
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2007 (3) TMI 336
Standards of weight and measurement - Sale of goods higher than MRP - whether it is impermissible for the Petitioners to charge their customers/guests the any price above the maximum retail price (MRP) mentioned on mineral-water packaged and bottled by third parties - Held that: - charging prices for mineral water in excess of MRP printed on the packaging, during the service of customers in hotels and restaurants does not violate any of the provisions of the SWM Act as this does not constitute a sale or transfer of these commodities by the hotelier or Restaurateur to its customers. The customer does not enter a hotel or a restaurant to make a simple purchase of these commodities. It may well be that a client would order nothing beyond a bottle of water or a beverage, but his direct purpose in doing so would clearly travel to enjoying the ambience available therein and incidentally to the ordering of any article for consumption.
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2007 (3) TMI 334
Exemption- . The assessee is assessed in the status of Hindu undivided family. The property owned by the assessee was given for construction of residential flats by the Assessing Officer in the course of assessment proceedings. The development agreement constituted only permissive possession according to the assessee for the limited purpose of construction of flats. The assessee contended that he continued to be the owner of the land till the sale of flats. The Assessing Officer proceeded to treat the property as urban land and brought it to tax. Tribunal held that the land offered in joint development did not fall under the definition of an asset under section 2(ea) of the Wealth Tax Act, 1957 and therefore no wealth tax was levied by the department. Held that- The court cannot extend the exemption without any legal compulsion in terms of the Act Since in our view, the wording that the urban land would mean a land on which complete building stands, such lands alone would qualify for exemption. That conclusion is inevitable thus accept the appeal of the Revenue. Thus, this appeal is accepted. The questions of law are answered in favour of the Revenue.
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2007 (3) TMI 332
Levy of penalty – Another person imported goods by using appellant’s advance licence - penalty of Rs. 25 lakhs on admission of transfer of imported goods to another person – grievance on violation of natural justice on grant of adjournment - we are of the view that the contention of natural justice has no legs to stand. Further, it is seen that adjournments were granted on two occasions at the instances of the appellant - Grant of adjournment is always discretionary in terms of power of the Adjudicating Authority. - Admittedly, all the three partners have chosen to play virtually a fraud by using the licences for the purpose of making money in the case on hand. The same has been held to be proved by both finding authorities. In the light of section 112(b)(ii), the penalty cannot be said to be on the higher side – plea for reduction of penalty not acceptable - We see from the material on record that licence was obtained in the year 1992 and the transaction has taken place right from 1992 onwards. Search has been carried out only in the year 1996 and thereafter, the penalty proceedings initiated in the year 2000 and an adjudicating order passed in 2001. Appeal filed in the year 2001 has been disposed of in the year 2005 – HC are very much concerned with regard to the delay in these matters. High Court has to remind the authorities that these matters are to be adjudicated at the earliest point of time in the larger interest of Public Revenue. We do hope that the authorities do hasten the process at least in future cases in the interest of revenue of the State. No grounds. Appeal is rejected.
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2007 (3) TMI 328
Issues involved: Stay of recovery of revenue u/s 220(6) of the Income-tax Act, consideration of existence of prima facie case, availability of alternative remedy before Commissioner (Appeals).
The judgment addresses the issue of stay of recovery of revenue u/s 220(6) of the Income-tax Act. The petitioners argued that the Assessing Officer should have considered the existence of a prima facie case before refusing the stay. The court held that the order refusing stay must be a composite order, specifically dealing with the existence of a prima facie case. The impugned order was set aside, and the petitioners were directed to appear before the Assessing Officer for a decision on the application u/s 220(6) on a specified date.
Regarding the availability of an alternative remedy before the Commissioner (Appeals), the court noted that an appeal had been filed by the petitioners. The court referred to a decision highlighting that the power of stay u/s 220(6) is granted to the Income-tax Officer only when an appeal is presented to the Appellate Assistant Commissioner, not to the Appellate Tribunal. The court emphasized that the statutory power of stay is confined to the stage of pendency of an appeal before the Appellate Assistant Commissioner.
The judgment also mentioned that coercive steps for recovery would not be pursued until the date of passing of the fresh order. The court disposed of the writ petition, indicating that the issue of whether the Commissioner (Appeals) is competent to grant a stay need not be addressed in this case.
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2007 (3) TMI 325
Disallowance of provision for liquidated damages - Method Of Accounting - Mercantile system Or Accrual - delay in completing the work - contract agreement - HELD THAT:- In the present case, where the assessee had taken the undertaking to carry out the work within the stipulated time, in default thereof the assessee was under an obligation to pay damages specified in the work agreement, and the assessee has not denied or disputed its obligation to pay liquidated damages for breach of the contract by not executing or erecting the work within specified time, and the assessee' s customer was entitled to deduct the amount of damages from the monies payable to the assessee as held in the case of Oil and Natural Gas Corporation Ltd. [2003 (4) TMI 438 - SUPREME COURT] and all the revenues towards contract work executed by the assessee in the year has been taken into the account for determining the profit, the assessee' s obligations to pay a corresponding damages relating to the period falling within the relevant accounting year has imported an accrued liability on the assessee, for which a reasonable provision made in the books of account is deductible, while computing the profit from the said contract works, of the year under appeal, though that liability was to be discharged at a future date.
The view we have taken above is further strengthened and supported by the logic or the reasoning that is being applied in holding that the monies retained by the contractee from the bills raised by the contractor till the obligation of satisfactory completion of the contract work is fulfilled would not amount to income of the contractor of the year in which the amount is retained.
We may hold that till the assessee discharges its obligation to pay liquidated damages on account of delay caused by the assessee in executing the contract work, sum equal to the estimated liability of liquidated damages payable by the assessee to the contractee would not accrue to the assessee as income in the year in which the bills were raised. This view is further strengthened by the decision in the case of Oil and Natural Gas Corporation Ltd.[2003 (4) TMI 438 - SUPREME COURT], where it has been categorically held that the contractee is entitled to recover the liquidated damages for delay in supply of goods, from the bills for payment of cost of material supplied by the contractor.
The hon’ble Supreme Court in the case of Calcutta Co. Ltd. v. CIT [1959 (5) TMI 3 - SUPREME COURT], Metal Box Company of India Ltd. v. Their Workmen [1968 (8) TMI 53 - SUPREME COURT] and as well as Bharat Earth Movers v. CIT [2000 (8) TMI 4 - SUPREME COURT], the assessee' s liability to pay liquidated damages can be estimated with reasonable certainty, though actual quantification may not be possible. The Assessing Officer has not done this exercise to ascertain the estimated liability of the assessee on account of liquidated damages with reasonable certainty. The assessee has quantified its liability of liquidated damages payable to the contractee in its books of account. Whether the estimated liability provided by the assessee in the books of account can be said to be a proper estimation with reasonable certainty has not been deliberated upon by the Assessing Officer or by the CIT(A). It is not in dispute that the allowable liability on account of liquidated damages payable by the assessee should be only in relation to the period of delay falling within the relevant year in dispute.
In the contract agreement entered into with Cochin Refineries Ltd., it has been provided that the assessee-company shall be liable to pay a liquidated damages at the rate of 0.5 per cent. of the contract value of the boiler per day of delay or part thereof subject to a maximum of 15 per cent. of the contract value of that boiler. It is also provided therein that all sums payable by way of liquidated damages under any of the conditions shall be considered as reasonable compensation without reference to the actual loss or damage which shall have been sustained.
In the contract agreement entered into with Kanoria Chemicals and Industries Ltd., the clause of liquidated damages states that in the case of delay in commissioning of the complete equipment beyond October 25, 1995, liquidated damages at the rate of 1 per cent. (one per cent.) per week subject to a maximum of 10 per cent. of ex-works price shall be applicable.
In the case of Madras Fertilizers Ltd., liquidated damages are leviable at the rate of 0.5 per cent. per week or part thereof, subject to a maximum of 5 per cent. of the total value of the contract, if the boiler parts of 110 Ata boiler package is not delivered by the end of 18th month.
In the case of Chemical and Plastics India Ltd., the provision has been made only of Rs. 27,525, which was subsequently settled between the parties.
We, therefore, restore this issue back to the file of the Assessing Officer for a limited purpose with a direction that the Assessing Officer should ascertain and determine the accrued liability pertaining to the year in question, in respect of the liquidated damages in the light of the terms and conditions of the contract agreement, and then to allow the same as a deduction from the profits in the year under consideration. The assessee shall be at liberty to furnish the actuarial valuation in respect of the assessee' s accrued liability on account of liquidated damages for the delay caused by the assessee in erecting or commissioning the contract work as per the terms of the contract agreement.
This ground is, thus, decided accordingly.
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2007 (3) TMI 322
Issues Involved:
1. Addition of Rs. 18,80,870 as undisclosed income.
2. Interpretation and application of Section 158BB(1)(c) regarding set-off of losses.
3. Validity of disallowing set-off of losses without proper reasoning.
Issue-Wise Detailed Analysis:
1. Addition of Rs. 18,80,870 as Undisclosed Income:
The assessee, a partnership firm engaged in the business of promoters and builders, had not filed returns for certain assessment years within the block period. During a search under Section 132, documents and incomplete books of accounts were seized. The assessee declared an undisclosed income of Rs. 23,35,977 in its block return. The AO, however, did not allow the set-off of losses amounting to Rs. 18,80,870 for the assessment years 1997-98, 1999-00, and 2001-02, resulting in an increased undisclosed income of Rs. 42,16,847. The AO's disallowance was based on the absence of entries in the seized books indicating these losses and statements made by the assessee during the search.
2. Interpretation and Application of Section 158BB(1)(c) Regarding Set-off of Losses:
The assessee argued that the AO misinterpreted Section 158BB(1)(c). The assessee contended that the section allows for the set-off of losses determined from entries in the books of accounts maintained in the normal course. The CIT(A), however, upheld the AO's decision, stating that the specific amendment to Section 158BB(1)(c) denies the set-off of losses where no returns were filed. The CIT(A) emphasized that the losses computed on the basis of entries in the seized books of accounts maintained in the normal course would not be available for set-off against undisclosed income due to the amendment.
3. Validity of Disallowing Set-off of Losses Without Proper Reasoning:
The assessee claimed that the AO and CIT(A) failed to provide proper reasoning for disallowing the set-off of losses. The Tribunal, after considering the submissions and relevant legal provisions, upheld the CIT(A)'s decision. The Tribunal noted that the seized books of accounts were maintained in the normal course but were incomplete. The Tribunal found that the losses for the relevant years were determined based on these incomplete books and documents, which were maintained in the normal course. The Tribunal concluded that the losses should be added back to the aggregate total income due to the specific provisions of Section 158BB(1)(c)(A), which were applicable as the due date for filing returns had expired without the returns being filed.
Conclusion:
The Tribunal upheld the CIT(A)'s order confirming the addition of Rs. 18,80,870 as undisclosed income, disallowing the set-off of losses for the assessment years 1997-98, 1999-00, and 2001-02. The Tribunal found that the losses were determined based on entries in the seized books of accounts maintained in the normal course, and due to the specific provisions of Section 158BB(1)(c)(A), these losses should be added back to the aggregate total income. The appeal filed by the assessee was dismissed.
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2007 (3) TMI 319
Issues Involved:
1. Initiation of reassessment proceedings.
2. Addition on merits and power of the CIT(A) on enhancement.
3. Allowance of statutory deduction under section 24 on arrears of rent.
4. Charging of interest under section 234B.
Detailed Analysis:
1. Initiation of Reassessment Proceedings:
The assessee challenged the initiation of reassessment proceedings. The original return filed by the assessee was processed under section 143(1), but later, it was found that the assessee had received arrears of rent amounting to Rs. 24,12,903, out of which Rs. 12 lakhs pertained to the year under consideration. The Assessing Officer issued a notice under section 148 on the grounds that this amount needed to be taxed on an accrual basis. The assessee argued that the reassessment proceedings were a change of opinion since the facts were already disclosed in the original return. However, the Tribunal held that the notice under section 148 was valid as no assessment was made initially, and the return was merely processed under section 143(1). The Tribunal cited the Delhi High Court's ruling in Mahanagar Telephone Nigam Ltd v. Chairman, CBDT, which stated that intimation under section 143(1)(a) is not an assessment, thus there could be no change of opinion. The ground challenging the initiation of reassessment proceedings was dismissed.
2. Addition on Merits and Power of the CIT(A) on Enhancement:
The Assessing Officer included Rs. 12 lakhs of arrears of rent on an accrual basis, which the CIT(A) deleted, relying on previous Tribunal orders that arrears of rent should be taxed in the year of receipt. However, the CIT(A) observed that the assessee received Rs. 15,69,355 as arrears of rent in the relevant year and issued a notice for enhancement. The CIT(A) directed the Assessing Officer to enhance the income by this amount. The Tribunal upheld the CIT(A)'s power of enhancement, stating that section 251 allows the Commissioner (Appeals) to confirm, reduce, enhance, or annul the assessment. The Tribunal noted that the subject matter of the notice for enhancement was the same as considered by the Assessing Officer, thus the CIT(A) did not exceed jurisdiction. The Tribunal dismissed the grounds raised by the assessee on legal aspects and merits regarding the enhancement.
3. Allowance of Statutory Deduction under Section 24 on Arrears of Rent:
The assessee contended that the statutory deduction under section 24 should be allowed on the arrears of rent received. The Assessing Officer, while giving effect to the CIT(A)'s order, included the enhanced arrears of rent without allowing the deduction under section 24. The CIT(A) upheld this, considering that the Assessing Officer was merely following directions. The Tribunal found that the arrears of rent received should be treated as income from house property, thus eligible for statutory deductions under section 24. The Tribunal ordered the allowance of the deduction under section 24, allowing this ground of the assessee's appeal.
4. Charging of Interest under Section 234B:
The assessee argued against the charging of interest under section 234B, claiming that they could not foresee the receipt of income. The Tribunal rejected this argument, noting that the arrears of rent were received during the relevant period, making the levy of interest under section 234B applicable as the advance tax is payable with reference to the finally assessed income. The Tribunal upheld the CIT(A)'s decision to charge interest under section 234B.
Conclusion:
- The initiation of reassessment proceedings was upheld as valid.
- The CIT(A)'s deletion of the Rs. 12 lakhs addition and enhancement by Rs. 15,69,355 was upheld.
- The statutory deduction under section 24 was allowed on the arrears of rent.
- The charging of interest under section 234B was upheld.
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2007 (3) TMI 317
Addition on Long-term capital gain - consideration received on sale of land - Valuation estimated u/s 55A - applicability of section 50C - HELD THAT:- It is a trite law that the legal fiction cannot be extended beyond the purpose for which it is enacted. Section 50C embodies the legal fiction by which the value assessed by the stamp duty authorities is considered as the full value of consideration for the property transferred. It does not go beyond the cases in which the subject transferred property has not become the subject-matter of registration and the question of valuation for stamp duty purposes has not arisen. By no stretch of imagination, the legal fiction confined to restricted operation can be widened to include within its sweep all the cases where 'such property' has not been valued by the State authorities for stamp duty purposes.
The Hon'ble Supreme Court in the case of CIT v. Amarchand N. Shroff [1962 (10) TMI 51 - SUPREME COURT] has held that 'legal fiction are only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond the legitimate field'.
It is wholly irrelevant to consider the assessed value of another property for stamp duty purposes as full value of consideration by making reference to the Valuation Officer u/s 55A. Unless the property transferred has been registered by sale deed and for that purpose the value has been assessed and stamp duty has been paid by the parties, section 50C cannot come into operation. In such a situation, the position existing prior to section 50C would apply and the onus would be upon the revenue to establish that sale consideration declared by the assessee was understated with some clinching evidence. The relevant judgments discussed above viz., K.P. Varghese [1981 (9) TMI 1 - SUPREME COURT] and Shivakami Co. (P.) Ltd.[1986 (3) TMI 2 - SUPREME COURT] would come into operation and govern the determination of full value of consideration.
It is noticed that the assessee transferred the property in question by executing an agreement which was not registered with the registering authority. In such a case, section 50C could not have come into operation and the resultant application of section 55A by which the Assessing Officer got the property valued and adopted the report of the Valuation Officer as the sole basis for making the impugned addition was wholly invalid. As the Assessing Officer has not embarked upon making enquiries from the purchaser about the actual sale consideration, and has not brought on record any other material worth the name to show that the sale consideration declared by the assessee was understated, in my considered opinion the addition was wrongly made and sustained. I, therefore, order for the deletion of the addition.
In the result, the appeal is allowed.
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2007 (3) TMI 315
Issues Involved:
1. Addition on account of undervaluation of closing stock.
2. Addition on account of undervaluation of work-in-progress.
3. Mixing up and valuation of stock during the search.
4. Addition on account of suppression of production.
5. Disallowance of foreign tour expenses.
6. Charging of interest under sections 234B and 220(2), and credit of tax.
Issue-wise Detailed Analysis:
1. Addition on account of undervaluation of closing stock:
The assessee's main grievance was the addition of Rs. 1,74,67,878 for undervaluation of closing stock. The AO observed discrepancies in the valuation of emerald cuts in the closing stock. The assessee argued that the stock was of lower quality, hence valued lower. However, the AO did not accept this explanation due to lack of quality-wise records and valued the closing stock at Rs. 407.63 per carat. The CIT(A) upheld the AO's valuation. The Tribunal, however, found that the assessee had maintained all possible records and the valuation by the AO was not justified. The Tribunal accepted the assessee's valuation of Rs. 2,40,500 for the closing stock, thus allowing the assessee's appeal on this ground.
2. Addition on account of undervaluation of work-in-progress:
The AO added Rs. 29,77,553 for undervaluation of work-in-progress, which was later reduced to Rs. 9,52,521 by the CIT(A). The AO's basis was the average cost plus manufacturing wages. The assessee argued that the valuation was correctly done and supported by records. The Tribunal found no defects in the assessee's records and accepted the valuation at Rs. 65,72,265 as declared by the assessee, thus deleting the addition sustained by the CIT(A).
3. Mixing up and valuation of stock during the search:
The assessee contended that the stock was mixed up with that of M/s P.C. Dhadda & Co. during the search and valued by the Departmental Valuer. The CIT(A) rejected this claim. The Tribunal, however, accepted the assessee's explanation supported by affidavits and found no evidence to disprove the mixing up of stocks. The Tribunal concluded that the stock was mixed up and under seizure, thus accepting the assessee's valuation.
4. Addition on account of suppression of production:
The AO added Rs. 1,11,91,527 for suppression of production based on an estimated yield of 25%. The CIT(A) deleted this addition, noting that the AO made the addition without proper enquiry and based on presumptions. The Tribunal upheld the CIT(A)'s decision, finding no material evidence to support the AO's claim of suppressed production and noting that the assessee's yield was comparable to similar cases.
5. Disallowance of foreign tour expenses:
The AO disallowed Rs. 56,012 of foreign tour expenses incurred by Shri Shreyans Dhadda, arguing it was unrelated to business. The CIT(A) upheld this disallowance. The Tribunal, however, accepted the assessee's explanation that the travel was for business purposes and reversed the disallowance.
6. Charging of interest under sections 234B and 220(2), and credit of tax:
The issues related to the charging of interest under sections 234B and 220(2) and the credit of tax were found to be consequential. The Tribunal directed the AO to allow the credit of Rs. 1,15,500 after examining the claim.
Conclusion:
The Tribunal allowed the assessee's appeal on the undervaluation of closing stock, work-in-progress, and foreign tour expenses, and accepted the explanation regarding the mixing up of stock. The Tribunal dismissed the Revenue's appeal and directed the AO to examine the credit of tax, thus partly allowing the assessee's appeal and the cross-objection, and dismissing the Revenue's appeal.
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2007 (3) TMI 313
Preliminary expenses envisaged in s. 35D - Expenditure incurs after the commencement of business - industrial undertaking or setting up of a new industrial unit - manufacture of state of art packaging systems - Deduction u/s 36(1)(vii) - Written off - bad debt - Deduction u/s. 80HHC - HELD THAT:- It is not unknown to anyone that the market gets flooded with new innovative products everyday. It is also not uncommon that the manufacturers of such products always try to package them in a sophisticated way to attract customers. Secondly, automation in every activity is the order of the day and hence new machines are also being evolved to hasten the process of packaging with efficiency and efficacy. The assessee therefore has to keep on innovating new products and improving the existing products to cope up with the expanding market and consumerism. For this it requires dedicated department which keeps on conducting surveys of various types. It is in connection with this department that the assessee has incurred various expenses. As mentioned by the assessee, this department has been treated as a separate cost centre and hence its expenses are shown separately. To cope up with its expanding activities and production, the assessee has to install new plants or new machinery. Installing such new plants or machinery is sometimes loosely referred to as setting up a new unit. The contention of the assessee before the CIT(A) that it has set up new units was in this context and not in the context in which it is envisaged in s. 35D. Therefore, there is no gainsaying that the assessee has put up new industrial unit and hence the expenditure in connection therewith should be amortised u/s 35D.
The assessee has not launched any new product worth its name. The production of Edge Board which is a new product introduced during the year is too insignificant to be considered. Thus, considering the overall facts of the case, we do not see any reason to apply the provisions of s. 35D. The AO is directed to allow full deduction of the expenditure as claimed by the assessee.
Deduction u/s 36(1)(vii) - Written off in respect of inter-corporate deposit (ICD) - "commercial expediency"- HELD THAT:- In the present case, it is not the case of the Department that the ICD placed with Shaw Wallace was for some personal reasons. Inter-corporate deposits are quite common and corporate houses accommodate each other on short-term basis on grounds of commercial expediency. Earning of interest on surplus funds is on grounds of commercial expediency as such income would ultimately augment the working capital of the assessee. Therefore, placing of ICDs is in the usual course of business and a company doing so need not be in money lending business. If placing of ICDs is in the normal course of business, the loss arising therefrom cannot be anything else but arising in the usual course of business. It was the judgment of the assessee that the debt due from Shaw Wallace has become irrecoverable. It was not without any reason that the assessee judged the debt to have become bad and irrecoverable. The ICD was initially for 90 days. At the end of this period, it was rolled over again for another 90 days. At the end of the second period of 90 days, Shaw Wallace issued a cheque which it could not honour. If these are not good enough reasons to consider a debt as irrecoverable, what else is required. It is further interesting to note that the interest accrued on this very ICD is also claimed as a bad debt and the AO has allowed the same. Therefore, considering the facts of the case, the claim of the assessee for deduction is allowed.
Disallowance on bad debt on account of unrealized benefit under advance license scheme - HELD THAT:- The fact that the outstanding balance due from Glen View includes commission and lease rent does not find a mention in the order of the AO as well as the CIT(A). However, papers placed in the paper book do reveal this fact and these papers were certainly before the lower authorities as the certificate appended to the paper book indicates. Therefore, it cannot be said to be a new fact brought on record.
The financial position of the Glen View must not have been healthy, and hence, had the assessee not advanced any money to Glen View, the assessee would have been the sufferer for want of supplies of straps. Thus, to serve the needs of its own business, the assessee had to keep on pumping funds to Glen View. This is nothing but pure commercial expediency which has been discussed in detail in respect of ground NO. 1. In fact, the case of the assessee here is much stronger than what it was in ground No. 1. Further, the balance does include lease rent and commission due from Glen View which was offered for taxation in the earlier years.
Therefore, the condition laid down in s. 36(1)(vii) is also fulfilled. Accordingly, we delete the disallowance.
Deduction u/s. 80HHC - 90% of Gross interest or Net Interest exclude from the business profit - HELD THAT:- We are inclined to follow the judgment of the Delhi High Court in the case of CIT vs. Shri Ram Honda Power Equip [2007 (1) TMI 86 - HIGH COURT, DELHI] as it is well established that between two views expressed, the one which is favourable to the assessee should be accepted. Therefore, respectfully following the same we direct the AO to exclude 90 per cent of net interest from the business profits. With regard to the observation of the CIT(A) that the AO has taken the same amount of interest as was taken by the assessee, we may only add that if the assessee has taken gross amount on some mistaken belief, it should not be prevented from taking the net amount because after all correct income has to be determined in accordance with law. Therefore, this ground of the assessee is upheld.
In the result, the appeal of the assessee for asst. year 1996-97 is allowed and the one for asst. year 1997-98 is partly allowed.
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2007 (3) TMI 312
Issues:
1. Stay petition for recovery of outstanding demand for assessment year 2003-04.
2. Calculation of tax demand after relief by CIT(A) order.
3. Adjustments in international transactions leading to demand.
4. Arguments for and against granting stay of recovery.
5. Decision on granting conditional stay of recovery.
Analysis:
1. The petitioner sought a stay of recovery of outstanding demand for assessment year 2003-04. The tax demand after considering relief by the CIT(A) order was Rs. 5,09,35,197.
2. The demand arose due to adjustments made in international transactions, resulting in an addition to the declared income by Rs. 56.70 crores.
3. The petitioner's counsel argued for stay based on a prima facie case, highlighting that correct comparables and margin adjustments under s. 92C of the IT Act were not applied, which could significantly reduce the demand.
4. The Revenue's representative opposed granting absolute stay, emphasizing the confirmed demand and public interest over the assessee's interest, as no financial hardship was pleaded.
5. After considering the facts and arguments, the Tribunal found that the petitioner had a prima facie case for stay of outstanding demand. A conditional stay was granted, requiring the assessee to pay Rs. 100 lakhs in two equal monthly installments, furnish a necessary guarantee, and await the decision of a Special Bench before fixing a hearing date.
Overall, the Tribunal granted a conditional stay of recovery of the outstanding demand, taking into account the arguments presented by both parties and the complexities of the case involving international transactions and tax adjustments.
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2007 (3) TMI 311
Issues Involved:
1. Whether the learned CIT(A) erred on facts and in law in upholding tax perquisite grossing up on multiple stages and not on a single stage.
Issue-wise Detailed Analysis:
1. Whether the learned CIT(A) erred on facts and in law in upholding tax perquisite grossing up on multiple stages and not on a single stage:
The core issue in these appeals is whether the tax perquisite should be grossed up at multiple stages or a single stage for computing the salary liable to be taxed under Section 15 of the Income Tax Act, 1961. The company filed the return of income on behalf of its employee, declaring total income and claiming a refund. The return was processed, and a notice under Section 148 was issued, to which the assessee consented. The company agreed to pay income tax on behalf of the employee, leading to the question of grossing up.
The assessee relied on the decision of the Uttarakhand High Court in the case of CIT & Anr. vs. ONGC, arguing against multiple grossing up of tax. The AO distinguished the facts of the current case from the ONGC case, noting that the income in the current case was assessable under the head "salaries" and not under Section 44BB of the Act. The AO also referenced the Delhi High Court decision in Frank Beaton & Anr. vs. CIT & Ors., which supported the method of multiple grossing up.
The CIT(A) upheld the AO's decision, distinguishing the current case from the ONGC case and referencing the Bombay High Court decision in CIT vs. H.D. Dennis & Ors., which supported the inclusion of tax paid by the employer as part of the salary. The CIT(A) also addressed the argument regarding Section 10(10CC), concluding that the tax paid by the employer was a monetary perquisite and not excluded from the total income.
The Tribunal referred to its previous order in the case of the assessee for the assessment year 2003-04, where the matter was restored to the CIT(A) for fresh consideration. The Tribunal noted that the provisions of Section 195A were not considered in that order. The Tribunal also referenced the Supreme Court decision in Emil Webber vs. CIT, which did not address the issue of single or multiple stage grossing up.
The Tribunal examined the agreement between the company and the employee, noting that the company was responsible for paying income tax on behalf of the employee. The Tribunal concluded that the salary should be calculated based on multiple grossing up, distinguishing the facts from the Frank Beaton case. The Tribunal also referenced the Bombay High Court decision in H.D. Dennis, which supported the inclusion of tax paid by the employer as part of the salary.
The Tribunal dismissed the appeal, concluding that the salary of the assessee should be calculated on the basis of multiple grossing up. The Tribunal also dismissed all other appeals, noting that the facts were identical to the current case.
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2007 (3) TMI 310
Jurisdiction Of the CIT u/s 263 - Deduction u/s 80HHC and 80-IB - Erroneous And Prejudicial Order - limited scrutiny by issue of a notice u/s 143(2)(i) - HELD THAT:- It is seen that provisions of s. 80HHC(3) have been amended retrospectively w.e.f. 1st April, 1992 and in the light of the aforesaid amendment the claim of the assessee is in accordance with law. Even otherwise as already held by us, the claim for deduction u/s 80HHC was never the subject-matter of the limited scrutiny assessment and therefore the AO could not have considered the same. The CIT in exercise of the jurisdiction u/s 263 could not therefore hold the order of the AO as erroneous on this ground.
It is further seen that the AOs passed the orders of assessments in the case of present assessees on 10th April, 2003, 8th Sept., 2003 and 29th Dec., 2003 respectively. The decision of the Hon'ble Supreme Court in the case of IPCA Laboratory [2004 (3) TMI 9 - SUPREME COURT] was rendered much later in point of time. Prior to the said decision there was a considerable debate, on this issue. As stated, the subsequent statutory amendment with retrospective effect also supports the claim of the assessee. Exercise of jurisdiction u/s 263 on this ground cannot be sustained.
In a limited scrutiny the AO could not go into any other claim except claim u/s 80-IB of the Act because that was the only issue which the AO thought fit to investigate in the limited scrutiny assessment. Thus, we are of the view that the exercise of jurisdiction by the CIT u/s 263 was not justified. Orders u/s 263 are therefore quashed and the appeals of the assessee are allowed.
In the result, the appeals by the assessee are allowed.
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2007 (3) TMI 309
Issues Involved:
1. Classification of rental income under the appropriate head of income.
2. Determination of the beneficial or deemed ownership of the property.
3. Allowability of expenses claimed by the assessee against rental income.
Detailed Analysis:
1. Classification of Rental Income:
The primary issue was whether the rental income should be assessed under the head "House property" or "Other sources". The assessee argued that since it was merely a lessee and not the owner of the property, the rental income should be assessed under "Other sources". The Assessing Officer, however, assessed the income under the head "House property" by applying section 27 of the Income-tax Act and took the annual letting value of the property at Rs. 36 lakhs.
2. Determination of Beneficial or Deemed Ownership:
- Beneficial Ownership: The Commissioner of Income-tax (Appeals) concluded that the assessee was a "beneficial owner" of the property based on the lease deed clauses which allowed the assessee to use, alter, and sub-let the property. The CIT(A) relied on Supreme Court decisions in CIT v. Podar Cement (P.) Ltd. and R.B. Jodha Mal Kuthiala v. CIT, which held that a person in possession and control of a property, enjoying its income, could be treated as the owner for tax purposes.
- Deemed Ownership: The CIT(A) also examined the applicability of section 27(iiib) of the Income-tax Act, which deems a person to be the owner if they hold a lease for a term of not less than 12 years. The CIT(A) interpreted the lease period of 9 years and 11 months as "at the first instance", implying it could be extended indefinitely, thus justifying the assessment under "House property".
3. Allowability of Expenses:
The Assessing Officer disallowed the expenses claimed by the assessee against the rental income, allowing only those permissible under the head "House property". The CIT(A) upheld this disallowance.
Tribunal's Findings:
1. Classification of Rental Income:
The Tribunal found that the assessee was not the owner of the property but a lessee with certain rights. The Tribunal held that the rental income should be assessed under the head "Other sources" as the assessee was not the owner of the premises. The Tribunal directed the Assessing Officer to assess the rental income under "Other sources" and not "House property".
2. Determination of Beneficial or Deemed Ownership:
- Beneficial Ownership: The Tribunal distinguished the current case from the Supreme Court rulings cited by the CIT(A). It noted that Prof. Harnam Singh retained ownership rights and the assessee was exercising rights traceable to the lease agreement, not in its own right. Therefore, the assessee could not be treated as the beneficial owner of the property.
- Deemed Ownership: The Tribunal rejected the CIT(A)'s interpretation of the lease period. It held that the lease was explicitly for 9 years and 11 months, and there was no evidence to support an extension to 12 years or more. Thus, the assessee could not be deemed the owner under section 27(iiib).
3. Allowability of Expenses:
Since the rental income was to be assessed under "Other sources", the Tribunal directed the Assessing Officer to re-examine and allow the expenses claimed by the assessee as per law.
Conclusion:
The Tribunal allowed the appeal of the assessee, directing that the rental income be assessed under the head "Other sources" and the expenses be re-examined and allowed accordingly. The Tribunal found no justification for assessing the income under "House property" and rejected the notion that the assessee was either the beneficial or deemed owner of the property.
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